For many homeowners, their mortgage is the largest cost each month. If that applies to you, then learning more about an 'offset account' could help you transform your loan into a tool to manage your money as you build your asset, instead of just being a cost to cover.
In fact, an offset account can reduce the interest cost of your home loan and could help pay your loan off sooner. Let's take a closer look.
Offset accounts generally work just like any transaction account - you can make withdrawals and deposits whenever you'd like. The difference is, offset accounts link to your home loan to reduce the amount of interest you're charged. Interest is generally calculated on your home loan amount minus the offset account balance, instead of the entire home loan amount.
For example, let's say you have a $500,000 home loan. If you deposited $20,000 into your offset account you would only be charged interest on $480,000.
If it's used well against your home loan, an offset account could have many benefits, including:
Some of the many benefits of having an offset account include:
There are many ways that people access the benefits of an offset account, meaning that they can use various strategies to on their home loan. This includes:
However, you use your account, it can be a good idea to keep the balance as high as possible to maximise your interest savings.
You can have more than one offset account attached to your loan. This allows you to keep funds and savings in special accounts, like forward planning for bills and holidays and still save you interest on you loan.
The amount of savings you make with an offset account will depend on your home loan rates and the amount you deposit into the account. The more you deposit, the more you'll save.
No offset account With Qudos Bank offset account Home loan principal $500,000 $500,000 Offset account amount $0 $20,000 Interest charged on $500,000 $480,000 Interest rate 2.89% 2.89% Interest savings first year (30 year loan term) $0 $578 Interest savings 30 year loan term $0 $9,930
In our example, an offset account with a balance of $20,000 could save you almost $600 in the first year and close to $10,000 over a standard 30 year loan term.
To make it as easy as possible for you to save money and get a great deal on your home loan, we offer multiple offset accounts on several of our home loan products for both new and existing home loan customers. That includes the award-winning Qudos Low Cost Home Loan and our Qantas Points Home Loan – click through, or give us a call on 1300 747 747, to find out more.
Offset Account Frequently Asked Questions
An offset account is a transaction account that is linked to your home loan account. The balance of your offset account is offset against the outstanding balance of your home loan, which means that you only pay interest on the difference between the two balances.
For example, if you have a home loan with a balance of $1,000,000 and you have $100,000 in your offset account, the interest on your home loan will only be calculated on the net balance of $900,000. This means that you will pay less interest on your home loan than you would have if you did not have an offset account.
The funds in your offset account are still available for you to use as you need them, just like any other transaction account. You can deposit and withdraw funds from your offset account as needed, without any penalties.
An offset account can help you save money on interest charges over the life of your home loan. It can also help you pay off your home loan faster because more of your repayments are going towards reducing the principal balance of your loan, rather than paying interest charges.
Yes, you can withdraw funds from an offset account as needed, without any penalties. An offset account is essentially a transaction account that is linked to your home loan, and it works by offsetting the balance of the account against the outstanding balance of your home loan when calculating interest charges.
So, the funds in your offset account are still available for you to use as you need them. You can deposit and withdraw money from your offset account just like you would with any other transaction account. There are no restrictions on how you use the funds in your offset account, and you can access them at any time without incurring any fees or penalties.
However, it's important to keep in mind that withdrawing funds from your offset account will reduce the amount of money that is offset against your home loan. This means that you'll pay more interest charges on your home loan, and it may take longer to pay off your loan if you withdraw too much money from your offset account.
An offset account does not reduce your monthly repayments on your home loan directly. Instead, it reduces the amount of interest you pay on your home loan, which can indirectly affect your monthly repayments.
When you have an offset account linked to your home loan, the balance of the account is offset against the outstanding balance of your home loan when calculating interest charges. This means that you only pay interest on the difference between the two balances.
The reduction in interest charges can potentially free up some funds in your budget that you can use to make extra repayments on your home loan or to cover other expenses. So, while an offset account doesn't directly reduce your monthly repayments, it can indirectly help you pay off your home loan faster or improve your cash flow.
Whether an offset account is worth it ultimately depends on your individual financial situation and goals.
An offset account can be a useful tool for saving money on interest charges and potentially paying off your home loan faster, while still having access to your funds. However, there may be other factors to consider, such as the interest rate on your home loan, the fees and charges associated with the offset account, and your financial goals.
To determine whether an offset account is worth it for you, it's important to not only compare home loan rates, but also to speak to a financial professional who can help you assess your options and make an informed decision based on your individual circumstances.
If you're interested in opening up an offset account, contact Qudos Bank to speak to an expert for personalised advice and guidance on the best banking products and services for your needs.
Qudos Mutual Limited trading as Qudos Bank ABN 53 087 650 557 AFSL/Australian Credit Licence 238 305. The information in this article is of a general nature and has been prepared without considering your objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances.
Loans are subject to approval. Normal lending criteria, terms and conditions and fees and charges apply. Mortgage insurance is required for home loans over 80% and is subject to approval.
You should read and consider the relevant terms and conditions and our Financial Services Guide available on our website qudosbank.com.au, before deciding whether to obtain any of our financial products or services.
We acknowledge the Traditional Owners of the lands on which we operate and pay our respects to Elders past and present, and to emerging community leaders. We also acknowledge the important role Aboriginal and Torres Strait Islander peoples continue to play within the communities in which Qudos Bank operates and where our team members reside.
